The role of DeFi in GameFi: Unlocking new revenue streams for gamers and developers

The gaming industry is undergoing a significant revolution, with blockchain technology at the heart of the change.

Recent data from Tingbits show that as of March 2023 there are some 3,629 blockchain games available on the market with Binance Smart Chain accounting for 38.11% of development.

Despite the caution demonstrated by mainstream studios, independent producers have been quick to take up the cause. From NFTs to play to earn models, blockchain technology is transforming the gaming industry for the better.

Decentralised finance or DeFi for short is playing a significant role in the continuing emergence of the GameFi narrative. By leveraging blockchain technology, DeFi protocols and Smart Contracts, GameFi is introducing new ways for players and developers to create revenue. Lets find out just how DeFi fits into the model.

Play to Earn

DeFi protocols are the driving force behind the ‘play-to-earn’ (P2E) model which provide players with the opportunity to earn in-game assets and cryptocurrencies from their gameplay. This allows players to monetize their time and effort spent on any given blockchain gaming platform and due to the interoperable nature of many games, any earnings are able to be used on other platforms or traded on the open market.

However, in order for any hard earned in-game assets, NFTs or cryptocurrencies to be traded, it is imperative that there are appropriate market places to do so. Known as NFT marketplaces, such exchanges also allow the trading of digital art and in-game avatars. This activity has led to the evolution of liquid and vibrant economies throughout the GameFi eco-system.

That being said, there are other ways to trade rather than relying on third parties and middlemen. By eliminating the need for intermediaries, decentralised exchanges (DEX), enable gamers to trade digital assets directly with other interested parties thereby reducing fees and friction. Such innovative and cutting edge market places are underpinned by DeFi protocols which ensure secure and transparent peer to peer transactions.

Dormant capital

One of the greatest attractions of DeFi protocols is the capacity to make idle or dormant crypto work for the investor. By locking in-game assets and cryptocurrencies into smart contracts, interested parties are able to contribute to liquidity pools, lending protocols or decentralised autonomous organisations (DAOs) and in return receive wrapped tokens as additional reward. This process is known as yield farming and innovative GameFi platforms are integrating these opportunities into their gameplay.

As you might expect, loaning and financing continue to attract a lot of interest, especially in the DeFi sector. Advanced DeFi protocols are able to facilitate peer to peer lending within games which allow players to borrow in-game assets or tokens that can be used for various other causes, such as expanding virtual businesses or acquiring rare items. In true Web3 style, any loans are managed by smart contracts which ensure repayment whilst providing interest to lenders.

One of the core tenets of the decentralised Web3 revolution is that of the decentralised autonomous organisation or DAO. With the emphasis on community governance, DAOs provide developers as well as players with a voice in the development, evolution and operation of the gaming eco-system. By allowing stakeholders a say in platform management through the decision making process, this equitable use of blockchain technology provides contributors with governance tokens which provide further voting rights as well as potential rewards.

By establishing standards and interoperability across numerous networks, DeFi enabled games can enable the seamless transfer of assets and value between different platforms. This efficient and flexible approach allows gamers to utilise their digital assets across multiple platforms which in turn creates a connected and fluid gaming experience.

As you can see, DeFi is empowering gamers and developers worldwide by introducing new revenue streams, facilitating peer to peer payments, enabling the true ownership of digital assets as well as promoting community-driven models of governance. By doing so, the introduction of GameFi principles into the traditional world of video games is revolutionising the format we all know and love. This novel use of blockchain technology is creating a gaming industry which is becoming more inclusive, rewarding and ultimately economically vibrant.

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